Ladbrokes slumped into a £43m loss last year - its first in 10 years - after the costs of shutting shops, boosting its digital business and implementing its proposed merger with Coral.

But as it concentrates on building up its self service betting terminals and digital operations, its UK retail business saw revenues rise 2% during the year but 6.5% in the fourth quarter. Operating profits fell 36% to £80.6m after increased marketing spend, product investment and a £50m increase in gambling tax. But this figure was better than expected and it said the new year had started well partly because “the unpredictability of the football season has thus far favoured bookmakers.”

Its shares have jumped nearly 6% to 129.7p, and analyst Nick Batram at Peel Hunt said:

The odds on Ladbrokes beating expectations would have been pretty long back in June last year. However, whilst it is early days there are encouraging signs that under Jim Mullen, the turnaround is (this time) tangible. There are threats (ie machine legislation) but top line momentum is now positive and the upside in Digital substantial. A strong start to the year provides a good base and we believe there is further to go. Buy.

Davy analysts said

An earnings beat of this magnitude should be greeted positively, though the scale of the online loss [£23.8m] will obviously continue to raise some questions. If management can convince the market that its investment in online opex is driving sustainable active customer growth, then a re-rating of the stock will likely follow. We continue to think that the stock looks cheap and that the valuation gap with William Hill will likely narrow over time.

At Numis Ivor Jones said:

Ladbrokes had a good finish to last year and is having a good start to this one. Some of this is a function of bookmaker-friendly sporting results (it had to happen sometime) but some of it is down to the investments of the past few years starting to pay off. It is too early in the year to start upgrading in our view, but Ladbrokes is warming up for Cheltenham in better shape than we might have hoped just a few months ago.

Management says that 2016 has started well. It is tempting to upgrade forecasts, but as the year has barely started, we are leaving our operating numbers unchanged while accounting for a higher ongoing tax charge and financing costs. We remain convinced that, even on current forecasts, the shares are materially undervalued and we reiterate our buy rating at 150p target price.